Tesco 2010 Annual Report Download - page 48

Corporate governance
Directors’ report on corporate governance
Tesco PLC is committed to the highest standards of corporate governance
as we recognise that strong governance is crucial in helping the business
to deliver its strategy, generating shareholder value and safeguarding our
shareholders’ long-term interests.
Below Board level, the company fosters a strong culture of good governance,
including maintaining high ethical standards and strong personal integrity.
This is formalised in the Group Code of Business Conduct which sets out
our expectations of employees clearly. All businesses within the Group are
required to monitor their compliance with the Group governance framework
and this information is reviewed at Board level.
Compliance with the Combined Code
The Combined Code on Corporate Governance sets out guidance in the
form of principles and provisions on how companies should be directed
and controlled to follow good governance practice. The Financial Services
Authority (FSA) requires companies listed in the UK to disclose, in relation
to Section 1 of the Combined Code, how they have applied the principles
and whether they have complied with its provisions throughout the
financial year. Where the provisions have not been complied with
companies must provide an explanation for this.
The Board considers that Tesco PLC complied in full with the Combined
Code principles of Corporate Governance and Code of Best Practice for the
whole of the year ended 27 February 2010, with the exception of provision
A.3.2, in respect of which the company was not in compliance for part of
the year.
Provision A.3.2 requires that at least half of the Board, excluding the
Chairman, should comprise Non-executive Directors determined by the
Board to be independent. The Board recognises the importance of a
balanced board with an appropriate level of independence. Due to
unexpected changes to the Board in the previous year, with the resignation
of Carolyn McCall and Mervyn Davies as Non-executive Directors, the
Board was not in balance at the beginning of the year.
At that stage, Ken Hanna’s impending appointment to the Board had
already been announced, and he joined the Board with effect from
1 April 2009, at which point the Board became balanced and once again
fully compliant with provision A.3.2.
Further information on the Combined Code can be found atwww.frc.org.uk.
Board composition and independence
As at 27 February 2010, the Board of Tesco PLC comprised eight Executive
Directors, eight independent Non-executive Directors and David Reid,
Non-executive Chairman. Rodney Chase is Deputy Chairman and Senior
Independent Director. The size of the Board is appropriate given the
diverse markets the business operates in and the breadth of operations
and services offered in each market.
The structure of the Board and the integrity of the individual Directors ensure
that no single individual or group dominates the decision making process.
Biographies for the Directors can be found on pages 36 and 37 of this report.
Changes to the Board since 1 March 2009 are as follows:
Ken Hanna Non-executive Director Appointed 1 April 2009
Election of Directors
All Directors have to submit themselves for re-election at least every three
years if they wish to continue serving and are considered by the Board
to be eligible. The Company’s Articles of Association require all new
Directors to be submitted for election by shareholders in their first year
following appointment.
The Chairman
Clear divisions of accountability and responsibility exist and operate
effectively for the positions of Chairman and Chief Executive. The
Chairman has primary responsibility for leading the Board and setting
its agenda, while the Chief Executive has executive responsibilities for the
operations and results of the Group and making proposals to the Board
for the strategic development of the Group.
Senior Independent Director
The Board has appointed one Non-executive Director, Rodney Chase,
to act as Senior Independent Director. The Senior Independent Director
is available to shareholders to assist in resolving concerns, should the
alternative channels be inappropriate. The Senior Independent Director
is also required to lead the discussion in relation to assessing the
effectiveness of the Chairman’s performance.
Non-executive Directors
The Non-executive Directors bring a wide range of skills and experience,
as well as independent judgement on strategy, risk and performance to
the Company.
The independence of each Non-executive Director is assessed at least
annually. The Combined Code suggests that a Non-executive Director
should be independent in character and judgement and be free from
relationships or circumstances which are likely to affect, or could appear
to affect, the Director’s judgement.
The terms and conditions of appointment of Non-executive Directors are
available for inspection at the Company’s registered office.
Board responsibilities
The Board held 8 meetings in the year. It also held a two day off-site
meeting which considered the Group’s strategy. The Board has set out a
clear Schedule of Matters Reserved for Board Decision in order to ensure
its overall control of the Group’s affairs. These include the approval of:
• the Company’s strategic and operating plans;
• annual and interim financial statements;
• major acquisitions and disposals;
• authority levels for expenditure;
• treasury policies;
• risk management and internal control systems;
• group governance policies; and
• succession planning for senior executives.
The Board delegates to management the detailed planning and
implementation of these matters in accordance with appropriate risk
parameters. The Board monitors compliance with policy and achievement
against objectives by holding management accountable for its activities
through regular updates. In addition, each substantial business within the
Group is required to present to the Board on a regular basis, giving it the
opportunity to understand and explore issues as deemed necessary.
During the year ended 27 February 2010, the Board’s scheduled activities
included the following:
• approving interim and full year results;
• receiving reports from the Remuneration Committee, Audit Committee
and Nominations Committee;
• receiving reports from other key committees within the Group, including
the Compliance Committee, Corporate Responsibility Committee and
Finance Committee;
• receiving reports on governance issues affecting the group, including
stakeholder management;
• receiving regular reports on risk management within the Group,
including the Key Risk Register;
• discussing and approving Group strategy;
• receiving a report on the effectiveness of the Board;
• receiving reports from key businesses within the Group; and
• receiving regular reports on the financial position of the Group and the
various businesses within the Group.
46 Tesco PLC Annual Report and Financial Statements 2010